Stability and Growth Pact

The term Stability and Growth Pact ( short euro stability pact ) refers to the agreements, which are to provide under the European Economic and Monetary Union for fiscal stability, especially for the euro and the countries of the euro zone. Significant legal basis of the Stability and Growth Pact Article 126 TFEU and appended to the Treaty Protocol No. 12 The Stability and Growth Pact initially consisted of Council Regulation ( EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies ( Official Journal of the EC No. L 209 of 2 August 1997, p 1 ), Council Regulation (EC ) No 1467/ 97 of 7 July 1997 on the speeding up and clarifying the implementation of the excessive deficit procedure ( Official Journal of the EC No. L 209 of 2 August 1997, p 6) and the resolution of the European Council of 17 June 1997 on the Stability and Growth Pact ( Official Journal of the EC No. C 236 of 2 August 1997, p 1).

The Stability and Growth Pact asks, in essence, that in connection with the euro followed by the Member States in normal economic times, a nearly balanced budget and limiting their public debt. This will soon be built leeway or retained to allow, if necessary on the one hand increased debt-financed budget deficits and on the other hand to reduce the debt by low budget deficits or even surpluses.

• 3.1 formation of contract
• 3.2 Infringements and sanctions
• 3.3 deficit procedure following the financial crisis from 2007
• 3.4 " six-pack "

Target

The aim of the pact is to promote stability and growth in the euro area. The framework is particularly intended to prevent by excessive debt behavior of the Euro countries is rising inflation, the financial scope of the euro countries as well as reduced overall, a uncertainty of the euro.

The European Central Bank ( ECB) has as a primary purpose of ensuring monetary stability, as may result negative social and economic consequences of excessive inflation. The Pact should also contribute to the political independence of the ECB, by possible political and economic pressure from the ECB is taken. In particular, it should be excluded that large budget deficits and government debt of individual Member States, the ECB put under pressure to buy up government bonds and operate a low interest rate policy. Highly indebted countries have a natural interest in an inflation-related reduction in their liabilities and thus tend to prefer a loose monetary policy.

In addition, the pact pursues the goal to promote the integration of Europe. Proponents of a political union also refer to it as the "minimal variant of a political union ".

Content

General rules

The Stability and Growth Pact requires EU Member States wishing to adopt the euro as its official currency or have adopted to limit their budget deficits and debt. These requirements were already part of the convergence criteria.

The Stability and Growth Pact is specifically stipulates that States must limit their public debt to 60 % of their GDP, the amount of their annual budget deficit to 3% of its gross domestic product ( GDP) and the state.

Under the provisions of the Stability and Growth Pact, the euro-area Member States are obliged to submit to the ECOFIN Council annually updated stability programs. In Germany the corresponding update of the German stability program of the Federal Government shall be forwarded to the responsible committees of the Bundestag and the Bundesrat. The Federal Ministry of Finance publishes the stability programs. The last update of the German Stability Programme was approved on April 17, 2013 by the Federal Cabinet.

Sanctions regimes

Where the budget deficit of a Member State is about to exceed the threshold of three percent of GDP, the European Commission may adopt an "early warning " ( "Blue Letter ").

If the budget deficit actually exceeds three percent, the European Commission launches an " excessive deficit procedure ". In a first stage, the countries concerned must submit a plan for how they intend to reduce the deficit. Keep them not this plan, sanctions may be imposed:

• It can be fines of 0.2 up to 0.5 percent of GDP of the country concerned should be imposed. ( 0.2 per cent base rate and up to 0.3 percent, depending on the severity of the offense, in addition. )
• The EU Council of Ministers may require deficit countries that depositing an interest-bearing deposit in a "reasonable amount " in Brussels until the excessive deficit has been corrected.
• A State may be asked to publish additional information before issuing bonds and other securities.
• It may be the European Investment Bank will be asked to reconsider its lending policy towards a country.

However, the sanctions can not be imposed by the European Commission: The decision must be approved by the Council of Ministers by a qualified majority, ultimately, the country concerned shall not vote.

Exemptions

Exceptions provides the stability pact only if an unusual event such as a natural disaster occurs or the affected country is in a severe economic crisis. Such defined by the Stability Pact in a decline in GDP of at least 0.75%. Greece is an exception.

History

Formation of contract

Under the Maastricht Treaty of 1992, the EC Member States agreed on convergence criteria that States must meet to join the third stage of European Monetary Union and to adopting the euro. On the initiative of the then German Finance Minister Theo Waigel two of these criteria have been written on the EC summit in Dublin in 1996 and over the euro - entry addition. With the motion adopted on 17 June 1997 Amsterdam Treaty, the Stability and Growth Pact was then applicable EU law.

Infringements and sanctions

Although Germany and France, the deficit limits exceeded in 2002 and 2003, the ECOFIN Council has set the process temporarily, as both countries promised new borrowing in 2005 to push below the 3 percent threshold. Domestically, the massive in Germany pressure from the Federal Chancellor Gerhard Schröder at the Federal Ministry of Finance, headed by Hans Eichel was preceded. On the part of the Federal Finance Administration and the European Commission, including the majority of the EU countries, was what was concerned compliance with the 3 % limit, a restrictive line favored during the upcoming parliamentary elections in 2005 on duty in mind Chancellor Schröder with the support of his former chancellery Chefs Frank -Walter Steinmeier and the then European department manager Reinhard Silberberg offered unpopular reforms in the form of government spending cuts and austerity measures avoided by by the relativization translated by then stringently the applicable debt and government deficit ratio. In cooperation with France, Italy and Greece Schröder reached a sanction loose exceeding the debt and deficit limits for Germany.

In order to achieve the long term legal certainty about the mechanisms and procedures in the excessive deficit procedure, the European Commission against the decision of the ECOFIN Council to the European Court filed. The former Monetary Affairs Commissioner Pedro Solbes wanted to clarify in particular the question whether the Council was entitled to reject austerity imposed by the Commission and thus to prevent a pending case sanctions against deficit sinners. On 13 July 2004, the Court decided that the Council would not necessarily follow the Commission's proposals and is in principle entitled to suspend the excessive deficit procedure first. The actual decision of November 2003, however, was not compatible with EU law, as formulated by the Council recommendations to the right of initiative of the Commission violated and remained well behind the already adopted regulations.

Mid-December 2004, the European Commission has initiated proceedings against Germany, however provisionally, as the Federal Republic had predicted a debt ratio of 2.9 percent for 2005 and this is assumed by the Commission regarded as realistic. On 14 March 2006, EU finance ministers agreed to strengthen the excessive deficit procedure against Germany. In 2006, contrary to the original expectations comply with the Stability Pact, the Federal Republic. ( Sanction Payment Distribution Law - Salzgitter AG ) On 5 September, the Law on the national allocation of non-interest bearing deposits and fines pursuant to Article 104 of the Treaty establishing the European Community had been decided.

The European Union ended on June 5, 2007 they have since 2003, ongoing excessive deficit procedures against Germany. EU finance ministers were responding to the fact that the German borrowing in 2006 for the first time was in the ballpark of the Stability Pact, as it was reduced to 1.7 percent of gross domestic product. The proceedings against Malta and Greece have also been adjusted.

Excessive deficit procedure following the financial crisis from 2007

As a result of the financial crisis from 2007 violates a number of Member States against the Maastricht criteria both at the annual budget deficit as well as the total debt. In February 2009, the European Commission announced the initiation of the excessive deficit procedure against the five euro - countries France, Spain, Ireland, Greece and Malta, as well as the non-euro country Latvia. Even the non-euro country Britain did not fulfill the requirements of the Stability and Growth Pact. In the summer of 2009, further proceedings against Poland, Romania, and Lithuania were added and extended the excessive deficit procedure against Hungary. On October 7, 2009, an additional deficit procedures against Germany, Austria, Belgium, Italy, the Netherlands, Portugal, Slovakia, Slovenia and the Czech Republic have been initiated. Thus, due to the global financial crisis, 20 of the 27 EU Member States, the rules of the Stability and Growth Pact had not met. In early 2010 it was reported via appropriate method against five other states.

" Sixpack "

On 13 December 2011, the so-called six-pack entered into force, including a reform of the Stability and Growth Pact.

Reform proposals

Both of the Pact supporters as well as opponents of the pact occurred in the last few years, a number of reform proposals:

The proponents of a hard Stability and Growth Pact demand a greater automaticity in the sanction process, so they can not be watered down and bypassed by policy makers. Among other things, is to be prevented in this way that individual member countries do not agree to a sanction process at a deficit violation for fear of their own future possibly high public debt ( a crow chops the other no eye out ).

In this context, it is often argued that the pact should be depoliticized. Since in principle, the question arises whether the ECOFIN Council is the appropriate body to decide the initiation of an excessive deficit procedure and other measures and, where appropriate, penalties. The critical point is the pact advocates the view in the fact that the Council is composed of the EU financial and economic ministers and the decision on the existence of an excessive deficit is therefore taken by those responsible at national level for its finalization are. To avoid future that deficit sinners escape by coalition formation of a sanction, it is discussed to extract at least the right to vote in the corresponding votes in the ECOFIN Council the States concerned. Consequently, not only the deficit sinners would be even excluded from the vote, but also all countries in which a current excessive deficit would be found. Some proponents go one step further and speak out in favor of the Council to fully escape the responsibility alone and to entrust the European Commission with the excessive deficit procedure in order to be the demand for a more objective method requirements.

Proponents of a soft and flexible Stability and Growth Pact have several suggestions. A reform strand aims it towards easing the three-percent criterion ( the former French President Jacques Chirac called for example, once a four -percent criterion). A second strand of reform calls for the solution of an annual deficit criterion, to a permitted debt, depending on the level of debt. Thus, in their opinion, as an incentive linked to lower debt levels in order to have in the event of a recession over a greater fiscal room for maneuver. A third group calls for the easing of the Covenant by singling out certain budget items under the Covenant ( for example, investment spending or defense spending, as required by the former French Defense Minister Alliot- Marie).

Representative of another direction for a full abolition of the Covenant, because according to some representatives would be a completely flexible national fiscal policies of euro countries because of the common central bank control by the ECB need.

Most political forces in Europe are now discussing a reform of the Covenant, because he was not kept in its current form anyway and is, regardless of its intended effects. The principle of unanimity among the Member States makes it difficult to reform.

The EU Commission has now seen a reform of the Pact not averse. Importantly, it is, however, that a pact reform should not lead to generally higher debt in the euro area.

With the introduction of the euro, the main focus was directed to the budgetary discipline of the Member States. The case of the Greek public debt is an example of this, as this is all about is to effectively implement existing regulations into practice. The case of Spain, where the cause of the crisis mainly consists in a real estate bubble, however, shows that the crisis regulatory mechanisms within the euro zone as a whole is not sufficient.

In the opinion of Jean Pisani -Ferry and André Sapir, it is wrong to claim that Article 125 and Article 143 TFEU, the support of an EU Member State strictly prohibited. Joachim Starbatty announced in the event of payment of a Greece - loan complaint to the Federal Constitutional Court; also German Research Institute reported on concerns.

On 15 March 2011 the Euro - group agreed to a tightening of the Stability Pact, which provides for higher penalties and a duty to give reasons for the Council when it is no sanction procedures be initiated despite an infringement. Automatic sanctions that would have made a contract amendment necessary, were not introduced.

However, the tightening of the Stability Pact needs to be seen for several reasons critical. First, there is no scientific justification for the debt criteria 3% and 60%. Second, it increases the administrative burden. Third, it provides no restrictions for countries with large budget surpluses. Fourth, the savings primacy may adversely affect the economic development.

European fiscal pact

The European fiscal pact ( " EU debt brake" ) occurred on 1 January 2013 for 17 EU countries ( for 13 euro states in full ) in force.

European stabilization mechanism

"European Stability Mechanism " ( engl. European Stabilization Mechanism, ESM ) is a decreed on 9-10 May. , 2010 in Brussels by the Council of the European Union debt instrument in order to ensure the financial stability of the euro zone and in Europe. Having turmoil in the financial in connection with the Greek debt crisis had exposed the European Union high risks the stability of the euro currency and the economy of the Member States, the countries of the euro zone agreed to support individual Member States in the emergency with 440 billion euros in loans. European Commission to this additional 60 billion euros., the International Monetary Fund is to expected to contribute additional loan guarantees in the amount of about 250 billion euros. from Federal President Köhler, the corresponding German law was signed on May 22, 2010. in France the corresponding draft law was ( loi de finances rectificative - PLFR ) presented to Parliament on 31 May 2010 and accepted by this June 3, 2010. The European Commission is committed to provide the mechanism in the long run. In order to process a special purpose vehicle is established under Luxembourg law.

With the publication of the Financial Stability Review June 2010 warned representatives of the ECB medium-term threats to the European banking system. Economist and policy advisor Alessandro Leipholz referred to in the face of the Greek crisis, a timely, consistent and coordinated approach institutionally safeguarded the euro zone countries as inevitable. An economist group of the Brussels think tank Bruegel, occupies a central crisis management architecture for demand due to the current development.